Who Should Pay for Certification?
AbstractWho does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer --- the seller --- follows from a non--trivial analysis revealing a clear intuition. Buyer--induced certification acts as an inspection device, whence seller--induced certification acts as a signalling device. Seller--induced certification maximizes the certifier's profit and social welfare. This suggests the general principle that certification is, and should be induced by the better informed party. The results are reflected in a case study from the automotive industry, but apply also to other markets -- in particular the financial market.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8190.
Date of creation: Jan 2011
Date of revision:
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Other versions of this item:
- Konrad O. Stahl & Roland Strausz, 2011. "Who Should Pay for Certification?," CESifo Working Paper Series 3365, CESifo Group Munich.
- Stahl, Konrad & Strausz, Roland, 2011. "Who should pay for certification?," ZEW Discussion Papers 11-054, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Stahl, Konrad & Strausz, Roland, 2010. "Who Should Pay for Certification?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 323, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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